Vanguarda Seeks First Profit in Shift to Soybeans

Sao Paulo-based Vanguarda is planting soybeans, corn and cotton in an area twice the size of Los Angeles after selling three biodiesel plants last year, said Chairman Salo Seibel. Photographer: Daniel Acker/Bloomberg

June 4 (Bloomberg) -- Vanguarda Agro SA, the Brazilian farm
company that lost 97 percent of its value since going public in
2006, expects to make a profit for the first time this year by
producing soybeans and corn after biodiesel projects folded.

Chairman Salo Seibel said Chinese demand for the crops that
Vanguarda has been growing since last year will help it turn
around five years of losses. The Asian country, which buys about
two thirds of the world’s soybean exports to feed poultry and
swine, has helped boost prices 43 percent in two years.

“Year after year, China has been increasing purchases from
Brazil,” Seibel said in an interview at his Sao Paulo office on
May 29. “We’ll feed the world.”

Seibel is seeking to transform Vanguarda into a crop
producer after a shareholder rift that led Spanish billionaire
Enrique Banuelos to leave the company last month and prompted
analysts to drop coverage of the stock. Sao Paulo-based
Vanguarda is planting soybeans, corn and cotton in an area twice
the size of Los Angeles after selling three biodiesel plants
last year, Seibel said.

Vanguarda was the worst-performing stock of the Bovespa
index in the past five years after failing to produce fuel from
castor beans, according to data compiled by Bloomberg. The exit
of Banuelos, who started a row with other shareholders to create
a farmland fund, will help Vanguarda focus on its crop projects,
Seibel said.

Before today, Vanguarda rose 13 percent this year to close
at 36 centavos on June 1, compared with a 5.9 percent decline in
the benchmark Bovespa index. The company raised 378.9 million
reais ($187.9 million) selling shares at 12 reais in November
2006 in an offering led by Citigroup Inc. and Banco Fator SA.

Buy Recommendation

Vanguarda is currently covered by only three equity
analysts, according to data compiled by Bloomberg. EVA
Dimensions and XP Investimentos rate it hold while Erick Hood of
Sao Paulo-based SLW Corretora plans to rate it buy after
reviewing his target prices for the stock.

“Now that the company has been pacified, they can focus on
crop production, a much more interesting business than
biodiesel,” SLW’s Hood said in a telephone interview May 29.
“It’s a buy.”

Vanguarda, formerly known as Brasil Ecodiesel, lost about
518 million reais between 2006 and 2011 after betting on a
government program to make biodiesel from castor beans, jatropha
and other oilseeds.

Former Brazilian President Luiz Inacio Lula da Silva
championed the production of diesel from oilseeds grown in the
arid backlands of the country’s northeast as a means of pulling
small farmers out of poverty.

Lula’s Plan

Vanguarda was the only major project to pursue Lula’s
vision. The plan failed because the raw material supplied by
small growers was not competitive against soybeans produced in
the country’s center-western export-oriented plantations, Chief
Executive Officer Bento Moreira said.

As Lula’s program flopped, companies that invested instead
in more lucrative biodiesel production from soybeans, such as
Sao Paulo-based Granol Industria Comercio e Exportacao SA,
thrived. Granol is now the country’s biggest biodiesel supplier,
while Vanguarda is out of the market.

Vanguarda’s demise as a biodiesel producer led shareholders
to fight over plans to turn it around.

Banuelos, who made his fortune building houses in Spain
before the country’s real-estate market crashed at the end of
2007, bought a 22 percent stake in Vanguarda in 2010 and sold it
last month. He wanted to lure private investment into the
company’s farmland holdings, while other shareholders aimed to
focus on growing crops, Moreira said.

‘Creating Value’

“Mr. Banuelos belongs to the past,” Seibel said. “Now we
are ready to focus on creating value to shareholders.”

Vanguarda planted 287,732 hectares (711,001 acres) with
soybeans, corn and cotton for the crop year that started Sept. 1
in land that it bought in 2010 and plans to expand the area to
about 300,000 hectares for the next harvest, Seibel said.

Shareholder Juliano Leite Malara, a former board member at
Vanguarda, said he bought the shares at more than 1 real two
years ago and is “very skeptical” he will see returns before
the end of this year as the company struggles with debt. The
investor, speaking in a telephone interview from Araraquara,
Brazil on May 31, declined to disclose his holdings.

Sapped Confidence

“They have sapped investor confidence over the years,”
Fausto Gouveia, who helps manage 380 million reais at Sao Paulo-based Legan Administracao de Recursos said in a telephone
interview May 29. “For now, I need to see results before giving
them a vote of confidence.”

The company is seeking to sell its remaining three
biodiesel plants to cut debt that jumped to 483.4 million reais
in the first quarter from 165.7 million reais a year earlier,
Moreira said.

Seibel, who holds a 15 percent stake in Brazilian plywood-boards maker Duratex SA through his Cia. Ligna de Investimentos
holding company, bought a 5 percent stake in Vanguarda this
year and was named chairman last month. His brother Helio owns
13.5 percent of the company.

“We are not proud of being the lagging stock,” Seibel
said. “We’re rewriting our story and plan to leave this
position very soon.”